Economic Outlook: Throwing tax darts

They have been throwing darts against the wall in Washington and those darts have tax rates attached to them.

If you have ever mused silently about writing to your congressional representative, now might be the time to do so -- although likely as not the opportunity for meaningful impact is already passed.

At this point, philosophical debates between Democrats and Republicans are done, The New York Times reported, and it is time for the number-crunchers to step forward. An agreement is that close, the Times declared.

The differences at large are spending and taxing. Currently, President Obama has offered to cut spending by $1.22 trillion in 10 years, which exceeds the target of $1.2 trillion proposed by Republicans.

There is, in fact, a magic formula at play here. The bulk of the cuts involves direct spending rollbacks, but $122 billion of the cuts would be derived by changing the government's formula for inflation, which means a cut in Social Security that comes from changing the fine print.

In addition, $290 billion in the spending cuts would come from lower interest costs on what will turn out to be a smaller national debt -- savings that are genuine, but completely hypothetical.

This amounts to money saved by not spending money that has yet to be spent, anyway. It's like canceling an unfunded program and counting its budget as additional revenue.

The original $800 billion in spending cuts, however, is more legitimate. It includes $100 billion in defense spending, $100 billion in discretionary spending and $200 billion from programs that do not require congressional approval year after year, like farm price supports.

Those aren't philosophical cuts of any kind. They're just available to be cut without stepping on any congressional toes. Categorically, they fall under the umbrella of easy come, easy go.

On the tax side of the equation, it is likely that only the top tax bracket will have its rate changed, with income at $400,000 or more taxed at a 39.6 percent rate, as opposed to the current rate of 35 percent.

The next tax bracket -- currently, those earning $388,350 or less per year -- would be taxed at the same rate they are taxed now, 33 percent.

The president is also insisting on keeping additional infrastructure spending and extended unemployment benefits in the deal, the Times said.

In international markets Tuesday, the Nikkei 225 index in Japan gained 0.96 percent,while the Shanghai composite index in China rose 0.1 percent. The Hang Seng index in Hong Kong lost 0.08 percent while the Sensex in India gained 0.63 percent.

The S&P/ASX 200 in Australia rose 0.48 percent.

In midday trading in Europe, the FTSE 100 index in Britain added 0.35 percent, while the DAX 30 in Germany rose 0.45 percent. The CAC 40 in France was flat, rising 0.09 percent, while the Stoxx Europe 600 gained 0.4 percent.